WHAT NIL BANDS ARE AVAILABLE FOR IHT?
For IHT there are a number of key reliefs and allowances available. Here we will be running through the Nil Rate Band and how it applies.
Each UK domiciled individual benefits from a £325,000 Nil Rate Band for inheritance tax purposes. What this means is that the value of your estate that falls within this band is taxed at 0%, amounts over this band are taxed at 40% on death. Every individual has one and if you are a married couple you can benefit from one each, providing IHT relief for up to £650,000 in assets as a marital unit.
One thing to note is that where you leave assets to your UK domiciled spouse or civil partner this does not use up your Nil Rate Band as such transfers are exempt for IHT. Your spouse can then inherit your unused Nil Rate Band, giving you the full benefit of two Nil Rate Bands on the later death. It’s only the net value of the death estate that is chargeable for IHT purposes, this means you are able to deduct any liabilities within the estate.
You will need to do the following to value the death estate:
- Determine all assets and their values
- Deduct any debts and liabilities
You will need to keep records of how the values were determined, such as valuations from third parties. In the event that HMRC enquire in to the IHT return they can potentially go back up to 20 years.
Assets can include items such as:
- cash in the bank
- property and land
- jewellery and watches
- and much more
Gifts also need to be included, such as cash or other assets, if they were given away in the seven years before the person died. These are known as failed PETS.
You’ll also need to include any gifts given before this period if the person who died continued to benefit from the gift, also know as ‘gifts with reservations of benefit’. For example, they gave away a holiday home but continued to use it. Debts and liabilities reduce the value of the deceased’s chargeable estate. Think about items such as mortgages, credit card debts, tax liabilities and so on.
However, any costs incurred after death, such as solicitor’s and probate fees, can’t be deducted from the estate’s value for IHT purposes. However certain costs in relation to overseas property can be.
For more information on Inheritance Tax contact our specialist advisors.